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No love for Canada's major marijuana stocks on legalization day

Cannabis stocks closed down almost all across the board on Oct. 17, the day that recreational marijuana was legalized in Canada.

One major pot stock that managed to buck the trend was Aphria; Scotiabank analysts identified the company as the “best way to play the sector” in a note to investors.

Marijuana stocks fell across the board on Oct. 17. (Yahoo Finance)

Earlier on Wednesday, cannabis enthusiasm was on full display in dispensary lineups and at celebratory gatherings across Canada, while investors soured on pot stocks.

Aurora Cannabis Inc. (ACB.TO) plunged as much as 15 per cent to just below $12 per share on the Toronto Stock Exchange through the day. Canopy Growth Corporation (WEED.TO) retreated as much as eight per cent to about $63 per share. Both companies have retraced much of the early losses, but remain in negative territory.

Greg Taylor, manager of the Purpose Marijuana Opportunities Fund, said Wednesday’s broad-based pot stock sell-off shows the hype leading up to recreational legalization is beginning to die down.

“The event happens, and then people say, ‘Ah, that wasn’t really that big a deal.’ Then there is profit taking,” he told Yahoo Canada Finance on Wednesday. “It’s going to be a volatile sector until we get some real data, and we can actually analyze these companies.”

A depiction of a cannabis bud hangs from the ceiling as a band plays at Leafly’s countdown party in Toronto, Tuesday, Oct. 16, 2018, as they prepare to mark the legalization of Cannabis across Canada. (Chris Young/The Canadian Press via AP)

Taylor said that could take until the middle of next year, due in part to Ontario’s slow roll-out of physical retail stores.

The Horizons Marijuana Life Sciences ETF (HMMJ.TO), a basket of North American publicly listed life sciences companies with significant business activities in the marijuana industry, fell nearly eight per cent to about $23 per share. The ETF’s two largest holdings are Aurora and Canopy. The fund had nearly turned positive on the day by 11:40 a.m. ET.

WILL THE U.S. STEAL CANADA’S THUNDER?

Recreational legalization may mark the beginning of the end of Canada’s pot prominence. Taylor said investor attention is shifting south of the border, where companies are rapidly raising capital.

“The hype around the stocks is moving from the Canadian LPs (licensed producers) to more the U.S.-type companies,” he said. “That is going to happen as we move closer to the U.S. midterm election. There is a lot of talk about changing different bills going through the U.S. congress,” he said.

The Canada-heavy Purpose Marijuana Opportunities Fund recently increased its cash position weighting to 30 per cent.

“I think more on a short-term basis we should have some cash to make sure we can allocate on a pullback,” Taylor said. “We are starting to look at U.S. companies that have good opportunities and trade at a discounted valuation.”